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VANCOUVER — A credit union is forecasting that British Columbia’s housing market will remain strong for the next two years as a growing population and limited housing supply continue to push prices up, particularly on Vancouver Island.

However, Central 1 Credit Union says a new tax on foreign buyers will cause a substantial but temporary 10 per cent drop in Metro Vancouver sales that will extend into 2017.

Senior economist Bryan Yu says the tax puts further downward pressure on a market that has already been slowing after a very strong spring.

He expects Metro Vancouver sales to rebound due to the strong local economy and lack of supply, although he says prices will grow at a much slower rate than they did in the first part of 2016.

The annual median price of a home in the region grew nearly 20 per cent this year to $705,000, but Yu says prices will rise just 4 per cent in 2017 and 4.4 per cent in 2018 to $765,000.

He says the declines in Metro Vancouver are being offset by gains on Vancouver Island and, to a lesser extent, in Interior B.C., where people are relocating for work and more affordable housing.

“You’re also seeing the in-migration flows, not only from other provinces, like Alberta … but also I think from Metro Vancouver, pushing into these more affordable areas,” Yu says in an interview.

During the recession, few new homes were built in these regions and they suffered from excess supply, he says. But now, most of the extra housing stock has been sold off.

At the same time, Victoria has seen two per cent employment growth, with lifts in tourism, the film and television industry, and the public sector.

All these factors are helping to drive a 20 per cent annualized rise in home prices in Victoria, while Nanaimo is seeing an eight to 10 per cent bump, Yu says.

“I’m a little bit more cautious about Kelowna because they have a relatively weaker job market,” he says, adding that job losses in Alberta’s oilsands continue to impact Interior B.C.

In late July, the B.C. government announced a 15 per cent tax on Vancouver-area properties purchased by foreigners. The levy has caused uncertainty, likely prompting some foreign buyers to pull out of the market and impacting local confidence in real estate, Yu says.

But he says the bigger picture is that B.C.’s economy is still doing very well. Employment in the province grew 3.5 per cent over the past year, while in Metro Vancouver it grew 5 per cent.

Housing starts are projected to remain above 40,000 units in 2017 and 2018, he says.

After a year of runaway unaffordability in Metro Vancouver, Yu stresses that price deceleration would actually be quite healthy.

“We don’t want to see 10, 15 per cent growth year over year. It’s largely unsustainable,” he says.

“We will see a decline in sales that will cool the market, and will decelerate prices, but I don’t think it’s going to be as drastic as some others may be believing.”

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